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Cost containment and the German market

The healthcare system’s budget limitations will face further pressure from challenges such as personalised medicine

German market reform

The healthcare market represents the largest economic sector in Germany and one of its key segments is the pharmaceutical industry. The country provides a growing healthcare market for manufacturers, with a good infrastructure, qualified employees and a number of research institutions enabling a productive knowledge exchange. Along with international corporate groups, there are a large number of medium-sized companies in the German pharmaceutical market. There is a continuous dynamic of mergers and acquisitions, the exchange of particular production sectors and takeovers of small companies in order to restock the product pipeline.

In Germany the pharmaceutical industry is governed by various political guidelines and regulations that ensure the maintenance and improvement of the high quality standards in public healthcare. A prompt, flexible and strategic reaction to the changing market environment is therefore a substantial component for economic success, and valid market data constitutes a relevant basis for the decision process.

Significant revenue growth in 2015
In Germany public pharmacies are the most important channel for the supply of medication for outpatient healthcare. This focus on the pharmacy market enables good sales of pharmaceutical products. In 2015 the pharmacy market generated €30.5bn, the highest revenue ever (according to the manufacturer selling price) and 3.5% more than the year before. Compared to 2006 the sales volume increased by 40%, illustrating the positive development of the market. In contrast to the significant revenue increase in 2015 only 1% more units are set off in the same time-period. Therefore the revenue growth can be explained overall by increasing prices. 

In February 2016 the German pharmacy market offered over twenty thousand products with more than six thousand available substances. Compared to the European average this drug diversity is relatively high. It is possible that the numerous political measures for cost control and increasing competition in the market will have a negative impact on this wide variety in the future, leading to an alignment with other European markets. The market segments that account for the highest sales in 2015 are immune suppressives, virustatics and antidiabetics. Together they generate a market share of 21% (according to the manufacturer selling price). The virustatics in particular show an outstanding development. With revenue of €918m they took ninth place in the market sales ranking in 2013. Generating €2bn in 2015, the growth rate in this period exceeds 121%. This enormous boost is due to the modern hepatitis C treatment which also explains the decline in the market of immune stimulants and interferons by 12%, since interferons are no longer used for certain patient groups.

The ten-year trend of immune modulators for the treatment of severe chronic diseases like rheumatism, multiple sclerosis and antineoplastics for cancer therapy shows a positive market share development, growing from 10% in 2006 to 20% in 2015. The main sales drivers are biopharmaceutical medicines like the monoclonal antibody adalimumab, TNF-alpha inhibitor etanercept as well as the oncologic drugs imatinib and enzalutamide. Apart from growing revenues from innovative drugs, the sales volumes of medicine for highly prevalent and chronic diseases like cardiovascular indications are expected to increase due to the demographic development.

Public pharmacies are the most important channel for the supply of medication for outpatient healthcare

Focus on statutory health insurance
In the German pharmacy market, 84% of the revenue is generated by drugs prescription. In 2015 this market gained a sales volume of over €25.5bn (according to the manufacturer selling price). Subsequent to receiving a prescription from a doctor, patients get their medicine from a pharmacy, with the costs being partly or completely reimbursed by the patients' health insurance. In Germany almost nine out of ten patients are members of a statutory health insurance (SHI) and so the following analysis focuses on the SHI market. Patients are still able to have private health insurance instead of or in addition to SHI.

With a prescription volume of 70% in 2015, generic medicines are the largest segment in the German SHI market. As these can be sold considerably more cheaply than the original products, their revenue share accounted for only 21% in 2015. Apart from the defined discounts on every prescribed drug, the STI funds set up additional individual rebate contracts with pharmaceutical manufacturers. They represent an established instrument of cost control, especially in the generic segment, as 93% of all drugs under rebate contract are generics.

Innovative medicine requires high research and development costs which are reflected in the price set by the manufacturer. New therapy options and medical progress are indispensable in order to ensure better treatment for the patient. However, high expenses always need to be considered, in particular regarding the affordability of a healthcare system that is based on social principles. Focusing on patented drugs, the price difference to the generic segment is significant. With more than €11bn in the last year, 47% of the total revenue in the German SHI market is generated by patented products. Unlike the prescribed units in the generic market, the share of the on-patent segment only amounts to just under 6%.

In 2011 the Pharmaceutical Market Restructuring Act (AMNOG) was adopted - a strong regulating and much-discussed instrument for the moderation of price increases caused by recently approved products. In the process of a complex procedure, new chemical entities are compared to established therapy options in order to identify their additional benefit. The extent of this benefit influences the amount that health insurance companies will reimburse to the producer. In effect health insurance companies don't have to pay the price that was initially set by the pharmaceutical manufacturer. The prices resulting from the early benefit assessment in Germany represent an international reference influencing the formation of prices in Europe significantly.

STI funds represent an established instrument of cost control, especially in the generic segment

Innovative drugs, orphans and biopharmaceuticals
The pharmaceutical sector focuses more and more on specialised niche market segments. Observing these pipelines, a number of new substances will enter the market in the years ahead, especially for oncologic treatment. Exclusively in the field of antineoplastics and immunomodulators, 87 molecules have been pre-registered or are in phase III trials. Recently pharmaceutical manufacturers developed decisive innovations in the biopharmaceutical sector. There are currently 151 substances approved in Germany and in the last two years alone 28 substances have entered the market. Biopharmaceuticals have become indispensable in the therapy of complex diseases like rheumatism, cancer and multiple sclerosis. Therefore out of the 100 substances that are generating the highest revenues in Germany, 31 are biopharmaceuticals (according to the manufacturer selling price in MAT February 2016). This year the patent for the top seller adalimumab is going to expire and biosimilars are already in development. With 1.5% of all defined daily doses in the biopharmaceutical sector, the market penetration of biosimilars is still low.

Many companies have expanded their knowledge in the treatment of rare diseases - in January at least nine rare disease products received market approval. Revenues have grown by 59% since 2013 and orphan drugs generated 1.2bn€ in the last year. The majority of these new products are expensive and are expected to be a major cost drivers comparable with the new hepatitis C treatment. The discussion on limited budgets has already been raised in the German healthcare system and will be further intensified by new upcoming challenges like the broad application of personalised medicine.

Kathrin Pieloth, healthcare analysis and market access and Jana Heiler, corporate communication, both at INSIGHT Healthcare

21st June 2016

Kathrin Pieloth, healthcare analysis and market access and Jana Heiler, corporate communication, both at INSIGHT Healthcare

21st June 2016

From: Sales

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